Private equity funds bet US$5b on shipping rebound
Private equity funds that took on shipping debt from banks are betting ship prices that collapsed as much as 71pc in five years will rebound
Private-equity and hedge funds are accumulating shipping debt at the fastest pace since they began buying the risky loans from banks two years ago, raising prospects of the firms eventually owning the vessels.
About US$5 billion in shipping loans has changed hands in the past year, according to estimates by AMA Capital Partners, a New York-based fund manager and adviser. Hartland Shipping Services, a London-based ship broking and consulting company, said investor demand was driving prices as high as 90 US cents on the dollar, from 70 to 80 US cents a year ago.
The influx illustrates a broader shift as investors load up on debt being abandoned by banks amid regulations intended to prevent future taxpayer bailouts. Funds are betting ship prices that collapsed as much as 71 per cent in five years will rebound from historic lows. And if a prolonged downturn drives borrowers to default, the funds are preparing to do something banks historically resisted: take over vessels themselves.
If I was still managing a portfolio … I’d be unloading like mad
"The markets are flush with liquidity in terms of investors looking for homes," said Randee Day, the president and chief executive of Day & Partners, an advisory and consulting firm specialising in shipping, who ran JP Morgan Chase's shipping division in the 1980s. "If I was still managing a portfolio at a bank, I'd be unloading like mad."
While banks have been trying to reduce their loans to the shipping industry for years, a market for secondary debt did not emerge until 2012, Paul Leand, AMA's chief executive, said. Banks tended to hold on to their loans until regulatory pressure late last year added urgency to divest them, Day said.
Outstanding bank loans to ship owners totalled US$460 billion in November, according to Petrofin Research in Athens.
Davidson Kempner Capital Management paid US$500 million late last year for part of Lloyds Banking's shipping portfolio, Marine Money, an industry newsletter, reported.